Kinder Morgan exec: Pipeline grid needs realignment

By Jennifer A. Dlouhy, Washington Bureau

Updated 8:39 pm, Thursday, October 10, 2013

WASHINGTON — Surging oil and gas production in new areas across the United States creates fresh opportunities and challenges for companies operating a labyrinth of North American pipelines built decades before the current drilling boom.

The country needs a “rationalizing of the pipeline grid” to reflect the new energy development, said David Devine, the new chairman of the Interstate Natural Gas Association of America and the president of central regional natural gas pipelines for Houston-based pipeline giant Kinder Morgan. Pipeline companies will play a vital role providing the infrastructure to link the new resources to new markets.”

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Devine was elected Thursday to a one-year term as chairman of the trade group's board of directors.

Most of the existing pipeline network was built around former oil and gas hotbeds, with much of the grid flowing to the north and east. But oil drilling in North Dakota, natural gas production in the Northeast and the zeal for natural gas liquids on the Gulf Coast have dramatically changed the dynamic.

“Location of shale gas production basins relative to consuming markets will continue to drive adaptations of the interstate pipeline grid,” Devine told reporters. Companies increasingly will be “taking pipe in the ground that may no longer be highly utilized as designed and putting it into service in different, higher-valued purpose.”

In some cases, companies are looking to reverse the flow of pipelines — for instance, to ship supplies away from Pennsylvania and Ohio, instead of to those states. As more gas production happens close to its consumers, some pipelines are flowing well below their capacity.

Companies also may seek to convert gas pipelines to transport crude or natural gas liquids to fractionators and other facilities along the Gulf Coast, Devine said.

Energy producers are eager for more pipeline capacity, in part to chip away at an oil bottleneck in the Midwest that has suppressed prices and to take advantage of natural gas liquids that are raw material for everything from plastic bags to tires.

Tallgrass Energy is converting the Pony Express gas pipeline — purchased from Kinder Morgan in 2012 — so it can transport oil from North Dakota's Bakken formation to the oil hub in Cushing, Okla.

Enterprise Product Partners and Enbridge are expanding the Seaway Pipeline that connects Cushing with Freeport, on the Texas Gulf Coast. The pipeline formerly sent oil north, but the two companies spent $300 million to reverse its flow and boost capacity, so as to capitalize on a bottleneck of crude in Cushing.

In April, Magellan Midstream Partners began shipping crude oil through its Longhorn pipeline after reversing its flow. The pipeline had carried refined products from Houston to El Paso.

For midstream companies, a major challenge in realigning yesterday's pipelines for today's energy market is getting regulatory approval from federal and local officials.

Environmentalists concerned about increasing U.S. reliance on natural gas and landowners worried about oil spills are playing a more active role challenging proposed pipeline projects.

For instance, opposition to TransCanada Corp.'s proposed Keystone XL pipeline has been fed by concerns from landowners in its path and from environmentalists worried it would expand the marketplace for Canadian oil sands crude harvested through particularly energy-intensive methods.